You Find The Most Interesting Things Sometimes
As the Angry Retail Banker, part of my job is to provide you with a growing list of the best financial and banking resources that I can find.
Well, I recently stumbled across something interesting.
Normally, I’m putting my customers in FDIC insured savings accounts that are earning less than 0.25% APY. Or I’m putting them into long term fixed annuities that aren’t earning much more than 2% (and are often earning way less). And no matter what happens, that’s what my bank offers so that’s what my customers get.
As far as they are concerned, I could care less. But you guys? My ARBonauts? I strive to find something a bit better than that. So I did a little digging.
And that’s when I discovered Beam.
And discovered that they were offering 2-4% APY on an FDIC insured account!
Now, my first thoughts were, “That’s impossible! They are losing money by holding onto yours! What on earth are they doing with your money to avoid operating at a loss?”
And sure enough, according to their website, they are doing the exact same thing with your money that all other banks do. Lending it out via various types of loans (mortgages, credit cards, etc).
Something just seems off about that, but if the accounts are FDIC insured, then there’s no risk. Right?
No, no risk. Just a waiting list to deposit money with them.
A waiting list? What the hell? Why the hell is there a waiting list to open up a bank account? What type of bank is this? And FDIC insurance or not, what exactly is going on here if they are doing the same loans that other banks are doing? There’s no way they are making money, and nobody is going to just hold your money for you because they love you so much and want to help you. There are just too many things that don’t make sense, and that FDIC insurance really isn’t giving me as much comfort as it should.
Hmm, I need answers. You guys need answers. And as the only retail banking blogger out there (sorry, but blogs that just talk about “blockchain” and “API” don’t count), it’s my job to seek them out. And so I went to the source.
The CEO himself.
Interview With Yinan Du, The CEO And Founder Of Beam
Alright, people, I want you all to extend a warm Angry Retail welcome to Yinan Du. He’s the CEO and Founder of Beam, and the person in charge of getting you an FDIC insured return on your money that many dividend stocks couldn’t match.
He was nice enough to take time out of his busy schedule of doing CEO stuff and Beaming high interest rates and other things to answer my questions about his company and how it works.
Okay, so before we start, something to point out: At the top, you see a disclaimer that says “Affiliate Links”. You’ve all seen that before. I’m talking about a financial solution and giving you a link to it; clicking on that link earns me a commission at no cost to you. Pretty standard stuff. And I’ve always said in the past that I don’t work with any company whom I’m not a user/customer of, haven’t researched fully and feel confident with, or both. But Beam hasn’t actually opened its product up to the public yet. There’s nothing to review yet, so I can’t tell you whether to trust them or stay far away. The “affiliate link” that I am providing is actually just a signup link for their waiting list, where the only thing you need to provide is an email address. I can earn a limited-time 7% APY for myself if I have enough people signing up through my link, but that’s about it and it’s a long shot anyway. I am earning no commissions or fees by talking about this company.
Since we know so little about them, that’s why I reached out to the company to interview their CEO. I had a lot of questions for him, so I will let him answer and offer my thoughts on each answer, along with a conclusion at the very end.
With that out of the way, let’s start the interview with Beam CEO Yinan Du.
1.) Okay, so I saw your video and read your FAQ. You really don’t like the big banks because of how they make huge profits through the interest rate spread. I work in banking. So my first question for you, just to break the ice, is: Do you hate me with the power of a thousand suns, or do you despise me with the force of a supernova?
Hate is a strong word. We don’t hate banks at all, but we do think they can offer better value to us the depositors. More specifically, a distinction needs to be made between the banking community as a whole and the “big banks.” There are plenty of neighborhood community banks that do a better job at providing depositors with better value, and we love them.
Even as it relates to the “big banks”, we don’t hate them—we’ve simply made it our mission to educate consumers on the how and why behind their APY. Whenever we tell anyone about what we offer—a 2%-4% APY— the feedback is unanimously wonder and disbelief. People ask, “How can you do that? Even X bank doesn’t do that, and they’re huge!” So we tell them why—and the truth is that big banks have chosen (not required by the government, contrary to popular belief) to pay depositors a measly 0.01%.
Like yourself, I too come from the banking world. I use to work at JP Morgan covering the M&A, financing and general corporate needs for financial institutions and specifically for banks. We both know that there are many valid reasons for why banks do what they do, and there are nothing to hate about them other than a progressive mindset to improve things for betterment of common good.
My thoughts: Well, he said he didn’t hate me. That must mean he despises me! Other than that, not much here. His background at JP Morgan interests me, as it shows that this company isn’t a bunch of techies who only know software coding looking to “disrupt” an industry they know nothing about. Other than that, Du wants to make sure we’re all aware that no one in Beam thinks the banks are evil and out to steal your money, as many of the Occupy Wall Street types do.
Though did anyone really think that the government required the banks to pay nothing on their deposit accounts? I’ve never heard anyone–banker or customer–say that. When did that become popular belief?
2.) So we’ve seen your big sell. 2-4% APY on an FDIC-insured bank account. No crazy investments or nothing. Okay, fine. But how does this work, exactly? I understand the concept of an online-only bank, which gives higher rates than the brick and mortars because of their lower cost. But how on Earth are you able to give customers up to 4% (7% for top referrers) in a low rate environment such as this? Your site says that you use our money to make the same loans that the big banks do, but the rate on a 30 year fixed rate mortgage is, what, 4.50%? How are you guys making money?
Long story short, we’ve slashed a lot of the overhead traditionally involved in banking, particularly the marketing and frills that accompany brick and mortar operations.
We make money by acting as a technology service provider to financial institution partners (managing depository operations for them) and earning a service fee from doing so.
My thoughts: The first paragraph didn’t really answer my question. I know that online banks are able to offer higher rates due to less overhead. But how is 4% humanly possible? How is it possible to give a 7% to your top referrers? Simply spending less on marketing doesn’t answer the question; it doesn’t change the fact that you’re paying your deposit customers an interest rate very close to that which you are taking in from your loan customers. Strong profit margins are required to maintain a profitable business (unless you deal entirely in volume, like Walmart), so either Du is very generous but a terrible businessman, or there’s more going on here.
The second paragraph, however, tells us much more about Beam. It also sort of allows us to infer the answer that the previous paragraph didn’t give us. They are not a financial institution, but are instead a tech company (they are closer to Apple or Google than they are to Wells Fargo or HSBC). They are a technology service provider that charges financial institutions fees for their services. Large corporations outsource many of their functions to service providers because it’s cheaper than paying employees to do that sort of work. I don’t know what sort of technology services they provide (they might be the ones bank operations officers are calling in a panic when all the systems go down. I have no idea), but the fee income they charge to their large corporate clients must be enough to ensure high interest rates on retail customer deposits. Especially if they are considering putting deposit caps in place during the beta, which I’d be surprised if they didn’t.
3.) Okay, so what’s with the waiting list? I feel like I’m standing outside a ritzy Vegas nightclub with a velvet robe and a bouncer demanding a cover charge, which is flat out not my cup of tea. Why is there a waiting list to have an account with you? You mention “beta access”, but I can’t recall ever hearing a bank, online or otherwise, needing a waiting list for a limited public beta before going fully live before. Do you have an ETA for when you will be ready to accept deposits?
Beam is a technology company, and we’re doing what all successful technology companies do, which is taking customer experience seriously, and improving our product and service incrementally. We want to be able to offer our future members the best services through our technology, and that means taking carefully calculated steps. The first step is to roll out the product to folks on the front of the waitlist, batch by batch. This will help us understand better understand and meet customer demands, and allow us to give undivided attention to Beam members. Once we’ve had the chance to serve our first round of customers and improve our services, we’ll open the gates for everyone.
My thoughts: Beam may be a fintech company, but again, they sit pretty firmly on the “tech” side of “fintech”. Du tells us point blank that Beam is a tech company and not a financial institution, and they are acting as such.
Beta access is a fairly standard thing that tech companies do when it comes to rolling out new programs or new services, as far as I know. Hell, current and previous generation video games do it all the time now. I won’t pre-order for beta access as it’s just an excuse to take more of my money (I got burned by Bungie’s useless Destiny beta and, also, the entire game which flat out sucked), but games do engage in this practice. I would imagine a tech company offering financial solutions would do the same.
I don’t have much experience with tech companies as my advanced technology is my three year old iPhone and my Xbox 360, but I do want to discuss public access betas for a second and offer my thoughts. In my experience with video games, public access betas are simply a cash grab. A demo that you pay extra for and nothing more; just so you can tell your friends that you got to play the game before they did. Bungie’s Destiny beta was the same empty, lifeless experience as the rest of the game and almost turned me off to the company for good (I won’t touch Destiny 2 despite being a Halo and Marathon fan, Bungie’s previous masterpieces). No feedback was actually acted upon to make the final game an enjoyable experience. Modern Halo, Call of Duty, and other releases are the same. But those are just video games. This is our money. And I hope that when people are depositing tens of thousands of dollars with Beam, that Beam is truly listening to their depositors’ feedback on how to improve things and really works to make it happen.
Sorry for the seemingly off-topic rant about video games, but my experience with public access betas in video games has left a sour taste in my mouth towards the concept. I really want Beam to be better than the video game companies because they aren’t providing us another multiplayer first person shooter. They are possibly improving, via interest rate competition, the entire banking industry and it’s important that they exceed their peers in areas other than just simply APY.
Still, their answer makes enough sense to me. I’ll wait and see how things go, and I hope that they look at what their beta reveals doesn’t work and improve their product once it’s time for a full release.
4.) About those fees. What’s the catch? Do you simply mean no monthly maintenance fees, or will you go on record and swear before the Angry Retail Banker that Beam customers will never see a fee charged to their Beam account? You may place your hand on the Bible while giving your response to this question, if you so choose.
Nice one. But yes, we confirm that our customers will never be charged any fees while using their account with Beam. There’s no catch. We are simply adhering to the golden rule and treating our customers the way we’d like to be treated as customers.
My thoughts: I hope they stick to their promise, because Jesus is now watching.
5.) You mentioned in your FAQ that Beam makes money “by providing value-adding services to our partnering bank and other financial service partners”. Care to elaborate on this? What sort of value-adding services do you provide? Are these features on your mobile app that your customers can use, or behind the scenes services for your partnering bank?
(See second response in Question #2)
My thoughts: (See second response to the response in Question #2)
I am actually a little curious what services they do provide, but we now see what their primary source of income is. As said before, they make money by providing technology solutions to financial institutions and charging fees for them. Always keep this in mind when you’re confused about Beam. Their primary clients are financial institutions, and their primary income is from fees charged for services rendered. They aren’t as beholden to the [currently low] interest rate environment like the banks are.
6.) So, uh, okay, this is awkward. You say that you’re FDIC insured, and thus there is no risk of loss of deposit. Well, I checked the FDIC site for your certificate number, and, um, you guys aren’t on it. You mentioned a “partner bank” a few times. Are they the ones who are FDIC insured? How exactly does your relationship with them work (is a deposit with Beam really a deposit with Beam, or with this other bank)? And who is this mystery bank?
You are correct—Beam’s partnering banks are FDIC insured. Beam in itself is a technology service provider, not a financial institution; therefore it is not qualified to be covered by the FDIC and won’t show up on the FDIC site. The account will be offered through our banking partner, which will be FDIC insured.
Due to confidentiality reasons, we are obligated by our commercial partners to keep their names confidential until Beam officially releases to the public. However, we’ll be sure to share more details of the bank name, FDIC certificate details, etc. at the appropriate time in the future, so you can make a decision whether or not to activate your Beam service then, assuming you’re already part of the early access waitlist.
My thoughts: Okay, the awkward moment is sort of dispelled.
Du’s answer is pretty much the one I was expecting. Beam isn’t a bank (as mentioned a couple times so far). And your deposit with Beam is really a deposit with a partner bank that they have. That explains 100% why Beam does not–and never will–have an FDIC certificate number.
They’ve likely opened a specialized large commercial account with specific account privileges and the ability to generate sub-accounts for each depositor, each one paying a specific interest rate. That’s how I imagine they have it set up logistically, at least.
With this new information, the mystery of how Beam can pay such high rates without taking a loss starts to make sense. On Beam’s FAQ, it says that your deposited money is being loaned out in the same way that it is with any other bank. That was simply impossible; their rates exceed the loan APRs. But here, we see that the huge interest rates are coming in from two fronts. On the one hand, the partner bank provides revenue generated from various types of loans, which Beam states can be about 4-5% on every dollar held in deposits. They probably pay about 1-1.25%, if I had to venture a guess, which is about the APY of a high yield savings account. A CIT Bank savings account earns about 1.35%, so I don’t think my assumptions are totally out there (I wouldn’t be surprised if CIT was the mysterious “partner bank”; they certainly fit the profile given by Beam on their FAQ).
So that’s one half of the revenue equation; the other half provided by Beam and their fee income. Rather than the banks charging small and often-refunded fees to some of their customers, Beam charges premium recurring fees to their large corporate clients, leading to Beam’s fee income being larger and/or more reliable than that of any bank. That income, after paying their operating expenses, probably adds a percentage point or two to what they are able to pay on a deposit account.
And now that gets coupled with a small customer base, leading to a significantly smaller amount of people expecting a gigantic interest rate and thus a smaller expense created by that 2-4% rate.
I know, there are a lot of assumptions being made here. But they are all very reasonable assumptions that make everything start to fit together. In the absence of information on how Beam is able to provide such a rate, a lot of the online conversation drifted towards whether they are a legit company or not. Until they roll out everything for the public, we can’t say for sure. But using what information we have to start fitting pieces of the puzzle together, suddenly things are starting to make sense. So, Mr. Du, did I nail it?
The only sour note right now is the fact that we still don’t know who this partner bank is. I understand that there is a confidentiality agreement and that we’ll know before we deposit any money, but it’s still very frustrating. This partner bank’s identity, trustworthiness, and ability to prove their FDIC insurance is the key towards Beam’s accounts being worth the empty web space their website was uploaded on. Until I know this information, I can’t ever justify trusting Beam with so much as a penny of my money. Like I said, we’ll have to wait until their confidentiality agreement allows them to disclose this partner’s bank identity, which I’m confident they will the moment they get a chance.
7.) Your base rate is 2%, but your customers can get up to 4% by using certain free features of the mobile app. Care to tell the millions of readers out there more about these features?
We’ll announce all the details at launch. For now, I can tell you that users will be able to earn higher APY rewards by logging into and engaging with the app.
My thoughts: Again with the secrets. I guess it’s just my experience being in banking rather than in technology where things are done differently, but this frustrates me to no end. I’m sure it’s because of either confidentiality agreements, the possibility of certain features being added or removed, or both, but I really wish we could get an idea of what these app features will be…….and whether or not they will be worth the higher APY.
We do know that the app features are free. So if I had to guess, I would say that these features collect your data which is then sold to companies (probably financial institutions) in order to send specially targeted ads your way, which I could imagine that Beam then charges for showing on the app. Which means that, like with Equifax and the other credit bureaus, you may be the end user, but you are not the actual customer. Not a huge issue with me if the features provide an ultimate positive end value, but always something to keep in mind when using “free” mobile apps and other such things. Somebody is making money somewhere from your app usage, and you should at least have an idea of how.
8.) What sort of other services do you offer? Are you a full service bank, complete with debit cards, wire transfer ability, check writing, and the like? Will you be adding other products such as savings accounts and lending products to the mix? What about customer service? How will I get a hold of someone if I, say, see an unauthorized transaction on my account?
Check writing and direct deposit could be a part of the feature of the Beam app down the road; for our first release, however, that won’t be included. Debit cards won’t be offered with Beam mainly because you can transfer money in/out of Beam to a number of bank accounts relatively easily (and hence withdraw cash using your existing debit card at say Chase or Bank of America). Since Beam isn’t meant to replace your primary checking account but simply a higher-earning supplementary account, there isn’t really a need for yet another debit card in your wallet. Would be interested to get a polling from your readership on how important these features are, so we can more properly prioritize them and possibly get them to you sooner!
My thoughts: Hmm, suggesting a readership poll? It’s like he’s getting in my “Leave your thoughts in the comments below!” ending that I put onto each article. You wanna write this blog, Mr. Du? No? Didn’t think so.
The lack of standard banking features sounds bad, but makes perfect sense when you keep the ultra high interest rate in mind. It also gives more context to the non-answer we got early on in Question 2. Check printing, debit card processing, ACH/direct deposit setup, and other standard services offered all costs money for the banks to provide, believe it or not. Just because you don’t get charged for most of these things doesn’t mean the bank isn’t paying some sort of cost to provide them (even if it’s just some salaries and an electric bill for a specific department). And many of these things are provided even by the online banks, which means their higher-than-normal interest rates aren’t as high as they could be. It seems like Beam has trimmed things to the bone in the name of a higher interest rate on your deposits.
And that’s fine. After all, no online bank should ever be your primary bank. Let your primary brick-and-mortar bank provide you with all those free financial services. Your online bank should just be there to park your emergency cash and get as high a rate as an FDIC insured bank account can reasonably pay.
9.) Okay, only I would be enough of a paranoid banking nerd to ask this question, but how are you guys handling compliance? Do you have dedicated Fraud and AML/Compliance departments, or does this partner bank handle that?
As a technology service provider, we are obligated to fully comply with FFIEC standards when it comes to KYC/AML. Additionally, rest assured we work with credible, qualified partners who have the proven operational, technology, compliance and risk management procedures to ensure safety and soundness of Beam’s services.
My thoughts: Just to start off, right quick, the FFIEC stands for Federal Financial Institutions Examinations Council, and they are pretty much an interagency body that exists to ensure all the financial regulatory bodies are on the same page. Because it’s pretty tough to follow regulations when the OCC wants you to do one thing and the CFPB demands something completely contradictory. They do a bit more than that, but that’s it’s purpose in a nutshell.
This was another non-answer, but it’s tough to imagine that Beam doesn’t have some sort of Compliance Department to deter money laundering. Every bank, investment firm, insurance company, money services business, and even many types non-financial institutions are all required to have dedicated AML (Anti-Money Laundering) departments to identify their customers and report suspicious activity. And not only does Beam have to conduct this KYC (Know Your Customer) research on you, they would have had it conducted on them by their mysterious partner bank if they did open an account with them to hold your money (which has to be the case if they are offering you an FDIC insured bank account without qualifying for an FDIC certificate number).
Expect to have to provide your identifying information such as your name, address, phone number, Social Security number, occupation, and an image of your state driver’s license in order to have your account opened. Really, it’s the same as every bank in the United States, online or otherwise.
10.) Tell me about yourselves and how your company came to be. Do you see yourselves as a tech company, a bank, or something else? What about your background? You guys come from the banking industry, the tech industry, or a mixture of the two? And what, if any, change to the banking ecosystem are you trying to accomplish? What’s Beam’s mission statement?
As the founder of Beam, my prior experience sat at the intersection of technology and banking. I’m a second generation immigrant. I was a Computer Science and Economics double degree at MIT and went there on a full scholarship. At age 20, I was exposed to my first bank project while an intern at JP Morgan in New York City. Back then (and this was in 2003), we were looking at M&A consolidation opportunities for states for the west coast. I later on worked at KKR, a private equity firm, and some of my investment assignments were bank related. My other colleagues at Beam are all “mixtures” like myself.
Two impetuses brought about Beam, one internal and external. I’m an entrepreneur at heart. After my last company (which grew to thousands of employees), I was looking for the intersection of big problems in big industries, applying myself fully in industries nerdy enough to make my heart sing. Beam came out of that soul searching. That, and the fact that my mother has been nagging me about how the bank account she has in Asia is paying so much higher interest than the 0.01% APY she’s getting at her local bank.
Below is a statement about Beam’s mission.
WHAT WE DO
At Beam, we have our eyes set on an ambitious goal: to change banking forever by 2030. Today, over 95% of the US population uses a bank account, most of which are paying 0.01% a year in interest. Little do we know, for every dollar you deposit in your bank, your bank is making on average 4.5 – 5% a year, on your money, by loaning it back to you. Meanwhile, your cash in the bank is losing ~2% a year to inflation. Beam wants to change that, and keep more savings in consumers’ pockets.
As featured on The New York Post, Forbes, ABC, etc, Beam is a mobile bank account that pays 200x more than your average savings account, all FDIC-insured with zero fee and no minimum. Come join us on a mission to change banking for the better.
My thoughts: A few things to dissect here. First, let’s talk about Du himself. The man behind the company.
The best fintech companies would likely be the ones where their top management team has a mixture of both a financial and technology background, and Du himself doesn’t disappoint. His experience with JP Morgan doing Mergers and Acquisitions may not seem relevant to providing a high yield savings account, but if you work in finance, you need to know how the different types of financial institutions–and the different types of products that are offered–make money. That knowledge would certainly help him find a way to deliver those huge interest rates that most people, including myself, have said for years was impossible.
When I first saw that Beam was based in San Francisco, I was worried that it was going to be one of those tech startups. You know, the bearded hipsters with vast amounts of coding experience who dream of taking a mundane activity and turning it needlessly into a colorful digital experience that nobody asked for. Do we really need Silicon Valley to revolutionize bowl buying?
It’s good to see that rather than be one of the many tech startups whose founders have only computer programming experience and the burning desire to #disrupt something that doesn’t need to be #disrupted, Yinan Du has a background in the financial industry itself.
Du is also an entrepreneur with a history of building businesses. His previous business, he says, had thousands of employees. My business had one for a week. We fired him.
However, his business history is a bit spotty. Not evil spotty, but his aforementioned business with thousands of employees didn’t meet with a happy ending. 24quan, which as far as I could tell was supposed to be the Chinese Groupon or something, ended with a “restructuring” and major disputes with merchants and employees, including accusations of theft on and by both sides. 24quan was a group discount website. The company provided deal-a-day service offering local discounts to targeted audiences. I have a feeling Beam is the same sort of site, except with high deposit rates rather than discounts on purchases.
None of this is to discredit Du. He started a business that failed, as the vast majority of startups do. And he picked himself up, dusted himself off, and tried again. My point, however, is that even if your money with Beam will supposedly be FDIC insured, you still want to know about the business history and trustworthiness of the CEO when you’re entrusting your money with such a new company. The last thing any depositor wants to do is to have to go through the FDIC in order to access their own savings.
As for Beam’s aim to revolutionize the banking industry by 2030, I sincerely hope they do. I tend to explain away and justify certain unpopular things that the banks do (because most people don’t understand and/or are just customers who are angry that their every whim isn’t being catered to), but I’ve also talked about how the industry needs to change. I’d love to see an improvement in check clearing and payment processing. I’d love to see more transparency in the fees that are charged. I’d love to see less bureaucracy in the day to day processes. I’d love to see a lot of changes. Including a cultural change where banks are no longer afraid to take risks and try new things. Maybe Beam will help these changes take place, even if it’s only via more APY competition in the industry. Who knows?
One thing’s for sure, banks will certainly be different by 2030, regardless of whether Beam succeeds or not.
11.) Anything you want to add to this that you haven’t mentioned before? Now’s your chance.
A couple of things I would like to emphasize:
First, we’re not asking folks to open an account with Beam today. Rather, by submitting your email on Beam’s pre-launch waitlist, we will simply reserve you a spot so that you can be notified when the service is ready. Future Beam customers should expect a more diligent vetting of Beam’s terms and services before officially enrolling with Beam when it’s ready to serve.
Second, Beam is a limited service, supplementary bank account and not meant to displace your primary checking account. Wells Fargo and Chase do their job well, and we like them and use them too. Somewhat similar to the higher interest offerings of your neighborhood community bank, our relentless focus on doing one thing well (and safely) is one important reason why we can provide better rates than other full-service banks.
Third, if there’s one thing that will never ever change, that is Beam will forever put deposit customers’ interest first. The banking community is filled with a variety of constituencies, professionals, regulators, and service providers, and the different interests can get a little muddy. Beam knows who it should ultimately serve and will prioritize our values based on just that.
Because Beam is a new service, we won’t be perfect; you can expect areas we can do better or improve upon. As such, we rely the love and forgiveness of our early supporters to grow and flourish. Part of what makes banking so hard to innovate isn’t the industry itself, but the mindset that everything must be perfect from day one, or else. If that mindset has been applied to Google, Facebook, Amazon, etc, many of these services wouldn’t be so positively impacting our lives today.
My thoughts: There’s not much more I can do to elaborate on this. Don’t put your entire net worth into Beam. Don’t make it your primary bank. Beam doesn’t even try to hide the fact that you should not do this.
As for the comment on who they ultimately serve, I wish it were that simple. In such a highly regulated industry, it really seems to me that regulators are the banks’ ultimate constituents. Trust me, there is no action taken, word spoken, image shown, or penny moved without someone asking whether or not the regulators would be okay with it. This mentality is fully integrated in the branches (“We can’t have this investment paperwork in the vault overnight. It’s an audit exception!”), the Loan Departments (“We can’t underwrite loans using this criteria. Even though it makes sense and is applied evenly across the board, somebody somewhere might think it’s unfair to [insert protected class]. There, it’s a racist policy!”), the marketing teams (“We can’t put an image of our investment company partners anywhere outside or inside the branches. Despite the repeated warnings that they are not FDIC insured as well as the inherent nature of investments, someone might think they are FDIC insured!”), and everywhere else. Banks often do the things they do because they are beholden to the regulators before even their own shareholders. Customers and employees are at the bottom of the list, mainly because neither has the power to issue billion dollar fines. So Beam, I wish you luck on that “our customers come first” thing.
Du’s last paragraph might sound like they are prepping you for a million screw ups, but as said before, this is how tech firms work. They release new software and new technology and test as they go. They rely on user feedback and keep improving based on that feedback. So they might do things in the beginning that you don’t like. All this means is that things aren’t set in stone, and your feedback might help things change for the better. While banks have shunned innovation and change, technology companies need to embrace it in order to survive day to day. So don’t be too surprised if things change for the better at a fairly rapid pace.
Woo! That’s–wait sorry, I’m still typing in boldface. Gimme a sec? Okay, that’s better. God, this font looks so skinny right now.
Anyhoo, let’s try that again. Woo! That’s done! Thanks for making it to the end of the interview, folks! My fault. You know how I love to talk.
So what are my post-interview thoughts? Is Beam legit? Can they pay you 2-4% on your money while remaining FDIC insured?
Well, let’s summarize my conclusions. And remember, these are my assumptions on how they work. But I believe they are fairly reasonable assumptions.
We know Beam is a technology company, not a financial company. Their bread and butter is providing technology services to financial institutions for a fee. Oftentimes, these fees are recurring and sticky. If your bank is using Lotus Notes, for example, then they are using an IBM product. To change from using Lotus Notes to a competitor product involves more than just deleting one program and downloading another; these aren’t mobile phone games. So these are likely pretty hefty service fees.
We know they have partnered with a “real” financial institution, one that’s been in business for many years. Said bank will be holding your money and providing the FDIC insurance. And we know that your money will be lent out in the same manner as it is done at any other bank.
So I believe that Beam has opened a specialized no-fee corporate account with this bank, with the ability to create sub-accounts in the name of each customer. The bank holds the funds, but Beam provides what should be a very minimal amount of customer service (there are no features or services on your Beam account, so there’s not a lot that can go wrong). The 2-4% APY being paid is probably being split between Beam and this bank. Maybe 50/50, maybe not. Who knows? The bank probably makes money in the same manner as any other bank and is willing to pay standard high yield savings account rates (1-1.25%) on the whole account, especially if they are not handling any of the customer service. Beam pays the remaining share of the rate using its likely large and likely recurring fee income.
But Beam then goes further. It’s mobile app probably collects your data and sells them to advertisers, much in the same way Facebook and Google make money. They probably charge those same advertisers another fee to advertise the products and services to you directly on the app. Because your app usage ends up making Beam more advertising and information revenue, they reward you (or incentivize you in the first place) with an even higher APY.
The top ten referrers get 7% for 100 days. Honestly, that might just be considered “acceptable” losses in order to bring in more customers. It’s a small amount of people for a small amount of time. I heard somewhere that they will be placing caps on your deposit amounts, even though that’s not on Beam’s site (and something I really should have asked. Dammit!). That would further limit operational losses, if those 7% APYs are actually being paid at a loss.
The reason I’m dissecting this so heavily is because we need to know if this is a scam or not before we put our money in. And the Internet has been absolutely right to ask that question. On the face of it, a 2-4% APY does not make sense. It’s impossible. There’s a reason Bank of America isn’t offering that on a basic savings account, and it’s not corporate greed.
Making sense out of how the company makes money from this seemingly impossible offering means finding a legitimate business and a legitimate opportunity for yourself. No one ever asked how Bernie Madoff made his investors such huge returns, and look what happened.
So, does Beam get the Angry Retail Banker Seal Of Approval?
Understand, I’m not attacking them. I’m not saying that they are a scam and you shouldn’t trust them. But remember a few things:
- They haven’t started yet. This is more than a new company. Their beta still has a waiting list. No one has been able to open an account with them yet. How can I give a positive review of a company that hasn’t started operations yet? Or, in this case, of a bank product that hasn’t been released to the public yet?
- Too much secrecy at this point. Mind you, it’s not making me suspicious as I honestly don’t think they are hiding anything that would be any sort of deal breaker. But a lot of my conclusions have just been assumptions. And you know what happens when you assume. Sure, I’m confident that we will know all we need to know before putting in any of our money. But I’m not going to tell you to deposit six figures into a Beam account before I know who their partner bank is, nor am I going to recommend using their mobile app features before I know what they are. It’s not that I distrust them, but you should know more about such a new and untested company before you trust them with a $100,000 of your hard earned money. That’s all I’m saying.
- Sort of going in from the previous point on secrecy is the lack of disclosure about the FDIC insured partner bank. Again, I know that they can’t disclose the identity of this bank due to confidentiality requirements. And I’m fully confident that the identity of this bank will be revealed and that there is absolutely nothing to worry about. But at the same time, Beam isn’t Chase or Wells Fargo. Regardless of what you think about the Wells Fargo fake account scandal or Chase manipulating gold and silver prices or the HSBC money laundering scandal, you would still feel safe putting your money in one of their accounts. You wouldn’t need to run and look up their FDIC certificate number. Beam hasn’t earned that level of trust yet. And the FDIC insurance is the backbone of this entire offering. If it weren’t for the promise of an FDIC insured account, I wouldn’t have even clicked on their website, let alone interviewed their CEO. It was makes putting your money with Beam completely risk free. And while I’m sure the partner bank’s identity will be revealed and will probably end up being Capital One or something, I cannot recommend Beam at this very moment without seeing that FDIC certificate number that ensures that your money is protected.
So do I think Beam is a scam or dangerous or extremely risky? Hell no! I’m actually excited to meet Beam, the brainchild of Yinan Du. I’m excited to earn 2-4% on an FDIC insured account. I want to to see what features their mobile app has! I can’t wait!
I just can’t tell you to trust them yet, or recommend that you trust them with your money. We simply need more information about them.
What I do recommend you do right now, however, is to sign up for their waiting list. I did. All you need is to enter your email address. You’re not giving them your name or SSN or anything like that, not yet at least. Hell, I haven’t received any spam or advertisements or anything like that, so they are already earning my trust and I haven’t even deposited money with them yet.
This is not an affiliate link. I am not earning a commission for each email. However, the top ten referrers earn a 7% APY for the first 100 days. I don’t have a special relationship with Beam; anyone who signs up for their waiting list will get a special link to start referring friends and potentially win that top spot.
So while I can’t recommend Beam yet, I do think it’s worth everybody’s time to put themselves on the waiting list.
Readers–What do YOU think!? Are you excited to meet Beam, or do you think we’re being scammed? Do you trust them to deliver an FDIC insured account with such high interest rates, or do you think they’ll be out of business within a year? What questions would you have asked Beam CEO Yinan Du if you were interviewing him? Leave your thoughts in the comments below!